Thus Spake Ben Bernanke

U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press … that allows it to produce as many U.S. dollars as it wishes at essentially no cost. … …the Fed could find other ways of injecting money into the system–for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities … If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.

“On March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars. The Board will continue to publish institutional money market mutual funds as a memorandum item in this release.

“As I have already suggested, the rapid pace of financial innovation in the United States has been an important reason for the instability of the relationships between monetary aggregates and other macroeconomic variables.”

Ben Bernanke has given ample (and more) indications about what he will do. In fact, more than indications, he was brazen enough to say, what exactly he would do!

A ring side observer, former Indian Ambassador to Iraq from 1992 to 1994, Ranjit Singh Kalha’s book, ‘The Ultimate Prize’ makes some interesting observations on the genesis of the Iraq invasion.

“The first mistake Saddam made was when he decided in October 2000 to move away from using US dollars as the currency for oil exports, …under the UN ‘oil-for-food’ programme.” Saddam also converted Iraq’s USD 10 billion reserve fund from US dollars to Euros. “Although this act of Saddam was not of very great economic significance in overall terms, it represented for the United States a direct challenge to the use of the dollar as a currency for transactions,” … in his just-released book, “The Ultimate Prize”. Iran followed Saddam’s move and Venezuela started initiating barter deals outside the dollar system. “If most other Organisation of Petroleum Exporting Countries (OPEC) followed the Iraqi and Iranian example, the stability of the US dollar would be at stake,” Kalha, who was posted in Baghdad during the tumultuous 1992-94 period, says.

Sidelined to the (Indian) National Human Rights Commission, Kalha’s book was also buried under a mound of silence, not reviewed and made no impression in the popular media.

The Federal Reserve & Ben Bernanke

From March 23, 2006, information regarding M3 data was no longer published. The US printing presses started working 24 x 7 x 365.

From there it was a short step away to predict a financial crisis. Nouriel Roubini started off with an estimate of US$1 trillion to US$2.7 trillion write offs. Charles Morris wrote a book, “The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash”.

Yet $1 trillion is the amount of defaults and writedowns Americans will likely witness before they emerge at the far side of the bursting credit bubble, estimates Charles R. Morris in his shrewd primer, “The Trillion Dollar Meltdown.” That calculation assumes an orderly unwinding, which he doesn’t expect. “The sad truth,” he writes, “is that subprime is just the first big boulder in an avalanche of asset writedowns that will rattle on through much of 2008.” wrote Roubini.

Asia lost last year (my estimate) more than US$300 billion dollars due to the monetary policy of the USA. Deliberate, well thought out monetary policy by the USA Government.

The truth is that American lifestyle is being maintained due to Asian stupidity. The Chinese, Japanese, Indian, and other ASEAN countries have lent the USA – which is in the hock by over, US$4 trillion dollars. They will lose US$ 400 billion for the privilege of lending US$4 trillion to the USA. They designate trade in US dollars worth another few trillion dollars a year – which is zero-cost-to-US depreciating currency ‘float’ that the US benefits from.

The Big Mac index (based on two simple ideas of PPP and a standard industrial product) shows the dollar is overvalued against most currencies of the world. This over-valuation range is about 53% in case of India. What that means is that the US pays India only half the amount of what it should actually pay. And India pays double for whatever it buys from the USA.

The Tail That Wags The Dog

Kenichi Ohmae made his reputation with many books at the height of the Japanese boom – holding forth to spell bound audiences on the ‘miracles of Japanese management.’ One of his interesting observations was the quantification of currency trading – which he saw as a positive. “As Kenichi Ohmae observes in his book The Borderless World, the “tail” of foreign exchange trading has in recent years vastly outgrown the original “dog” (Money Meltdown, By Judy Shelton, Page 104).

What has happened as a result of unsustainable policies (simultaneous budget and current account deficits, and loose monetary and fiscal policies) in the US is that a huge liquidity bubble of $7-10 trillion has caused massive inflation in global prices for all asset classes: property, stocks, commodities, etc. – Percy S Mistry / New Delhi February 28, 2008 (bold letters mine).

Very soon, major movements will be measured in trillions – thanks to the humongous printing presses, that the US has used in the last few years. Daily trading volumes total US$1.5 trillion in the Forex Markets. To that add trading volumes of debt markets, stock markets and commodity markets. Combined global trading volumes now cross US$3.0 trillion – and growing. This degree of hysterical trading had made the US$ into a giant wrecking ball – which goes out of control very few years.

To overcome this crisis, Kenichi Ohmae says it will require another US$ 5 trillion. The bill for US$ 62 trillion of CDS (Credit Default Swaps) write downs, has just started coming in. Credit card debt of another US$ 10 trillion has just started.

Does George Bush Even Know How Many Zeroes In Trillion?

How Many Zeroes In A Trillion?

Does Dubya know?

To put it in perspective. The whole of India, produced last year, goods and services worth US$1 trillion. And the US – US$14 trillion.

Did banks lend out 7-10 trillion US$ in doubtful loans (Why didnt I get any of this?)? Who will pay the price for this? How will this get financed? Can we continue running the world financial system like this?

Get a 2ndlook on

Email Subscription

2ndlook Blogs

Quicktake focusses more on current events, recent events, reports, media buzz, matters of topical interests. Typically, Quicktakes are shorter than 2ndlook. Sometimes a few Quicktakes, morph into a 2ndlook post.